In India, the concept of reverse charge under GST is being introduced which is already present in service tax. Currently, there is reverse charge mechanism in supply of services only. But in GST RCM applicable for both services and goods.

Meaning of RCM under GST:

As per 2 (98) “Reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act, 2017.

Applicabilty:

All persons who are required to pay tax under reverse charge have to register for GST irrespective of the threshold Threshold:- turnover in a financial year exceeds Rs 20lakhs (Rs 10 lakhs for North eastern states).

Situations under where reverse charge applied:

1. Unregistered dealer selling to a registered dealer (In such cases, the registered dealer is required to pay GST on RCM basis for such supply.)

2. Services through an e-commerce operator

3. CBEC has notified a list of 12 services on which GST paid by the recipient on 100% reverse charge basis: the Services are

> Non-resident service provider

> Goods Transport Agencies

> Legal service by an Advocate/ Firm of Advocates

> Arbitral Tribunal

> Sponsorship Services

> Specified Services provided by Government or Local Authority to Business entity

> Services of a director to a company

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> Insurance agent

> Recovery Agent of Bank/FI/ NBFC

> Transportation Services on Import

> Permitting use of Copyright

> Radio Taxi services to E-commerce aggregator (eg: Ola, Uber, etc.)

Time of Supply for Goods Under Reverse Charge:

In case of reverse charge, the time of supply shall be the earliest of the following dates -:

> the date of receipt of goods or

> the date of payment or

> the date immediately after 30 days from the date of issue of invoice by the supplier (60 days for services)

If it is not possible to determine the time of supply under (a), (b) or (c), the time of supply will be the date of entry in the books of account of the recipient

Eg:

Date of receipt of goods 2nd July 2017

Date of payment 7th July 2017

Date of invoice 1st August 2017

Date of entry in books of receiver 18th July 2017

Time of supply of goods 2nd July 2017

Invoicing rules:

Every service recipient, who is paying tax on the basis of reverse charge has to mention fact in his GST invoice that is being issued. A registered person who is liable to pay tax under reverse charge i.e., the buyer has to mandatorily issue an invoice in respect of goods or services received by him from the supplier who is not registered.

Input Tax Credit under RCM:

> The service recipient can avail Input Tax credit on the Tax amount that is paid under reverse charge on goods and services.

> The condition is that the goods and services are used or will be used for business.

> ITC in RCM cannot be used to pay output tax, it means payment mode only in cash.

Composition Scheme under GST

Taxpayers with the aggregate turnover of Rs. 50 lakhs in a financial year are eligible to pay tax under composition scheme. But, taxpayers paying tax on the basis of reverse charge under GST are not eligible for composition scheme.

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11 responses to “RCM- Reverse Charge Mechanism”

  1. Shiv Kumar Pundir says:

    Mutual fund distributorship is a tricky issue, the mutual fund that gets commission/fee/brokerage say to the tune of 2.25% from a customer ( through You) is inclusive of the amount of GST . Accordingly they got to pay GST on the entire amount , if you were not there as a middle man. Since this amount is shared by you as a service provider to them , they want you to pay your share on the amount shared with you so that they can take the ITC and adjust against their actual liability.It is as simple as that. Since the amount shared with you is inclusive of GST, they are asking you to pay your share of GST or else their margin will decrease.

  2. dinesh says:

    What is RCM Applicable in wages paid in cash rs 7000 in a day by food grain dealer.

  3. vipul jatania says:

    IF purchase of goods from registered dealer via courier/air service (regd) .Is it a reverse charge mecanism? Both charged IGST on invoice.

  4. sachit says:

    hi
    i m a registered manufacturer in Chandigarh.my raw material comes from registered dealer in Ludhiana. The transporter charged me Rs. 3000 for cartage and freight.
    my ques is:
    1. am i liable for Reverse charge?
    2. if yes, what will be the rate of tax and what will be the date to pay reverse charge

  5. VMH says:

    Yes In Composition Scheme The turnover Limit has increased Rs 75 lakhs.

  6. SHIV KUMAR says:

    RECEIVED LEGAL SERVICE WHO ISSUE RCM BILL ISSUED

  7. kishor warrier says:

    Pls clarify whether the following points are true as per GST rules:
    1) A Mutual Fund Distributor provides services to the Asset Mgt Co. (AMC). However, since this category is not mentioned in the RCM, the AMC need not deduct GST on Brokerage. commission paid to the Distributor.
    2) If the distributor income exceeds the threshold of Rs 20 Lakhs , he need to be registered under GST and pay tax on the invoices raised by him. For those below the limit, no tax is payable under
    exemption clause.
    3) In short, AMCs of Mutual funds are not mandated to deduct GST under RCM.

  8. Sarath says:

    Thanks for sharing!!!
    For ITC,
    The service recipient can avail Input Tax credit on the Tax amount that is paid under reverse charge on goods and services hence the recipient can use it for Output tax.

    Pls comment

  9. Girish N S says:

    Threshold limit for composition scheme has been increased to 75 Lacs from 50 Lacs.

  10. Ajay Shirke says:

    Limit of composition scheme has been increased to 75 lacs.

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